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The Cleaner

Lawndale Capital Taking On Willbros Group

Lawndale Capital, which owns 2.6% of Willbros Group, said it's voting for a proposal to elect Willbros' board members annually instead of its present practice of its board members serving staggered 3-year terms -- basically to declassify the board. 

It also wants the board to Edward DiPaolo, a long-time friend and former business partner of CEO McNabb. You can find our a bit more on the whole Willbros saga here

Here's the full letter from Andrew Shapiro and Lawndale: 

Dear Mr. Williams:

Lawndale Capital Management, LLC, through the funds it manages, ("Lawndale") currently owns 2.6% of Willbros Group, Inc. ("Willbros" or the "Company") common stock. The recently filed Proxy for Willbros' upcoming June 9, 2015 Annual Meeting provided disclosure on the Company's corporate governance and compensation polices, solicited support for several management sponsored proposals and opposed a shareholder-sponsored proposal to de-stagger Willbros' Board elections.

We are writing to explain our concerns over Willbros' corporate governance and the rationale of Lawndale's vote at your upcoming June 9, 2015 annual meeting:

  • "FOR" Proposal #5 - eliminating Willbros' classified Board of Directors and requiring all directors stand for election annually

Our attempts to discuss these concerns with you directly have been blocked by new CEO John McNabb, whose outdated approach to corporate governance has further contributed to our decision to make this letter and our concerns public. We ask that you distribute a copy of this letter to all Independent members of Willbros' Board and confirm your receipt and said distribution.

Lawndale's Rationale To Vote "FOR" Approval Of Proposal #5 ("De-Classify" Resolution)

In a company such as Willbros, where shareholders are not allowed to call special meetings or act by written consent, the annual meeting election becomes the only forum where shareholders can hold its directors accountable for their oversight and management (or lack thereof) of the company's affairs.

Having directors stand for elections annually makes them more accountable to shareholders, and could thereby contribute to improved performance and increased firm value. In addition to Lawndale's practical experience over more than two decades as an activist investor, we are further persuaded by the many academic studies that connect classified boards with lower firm valuation and value-decreasing decisions and policies.

We further note that studies cited by Willbros in its Proxy with contrary findings have included a population of companies ranging from well managed to poorly managed. But, in the instance of Willbros, we don't have a range. Instead, we have clear evidence of a mis-managed and mal-governed company that suffers from poor oversight and material weaknesses of internal controls.

During your tenure and that of all of your fellow directors (excluding new director nominee Wedmeyer), Willbros has a long history of risk management issues that have negatively affected shareholder value. This history includes, but is not limited to the following:

  • a violation of the Foreign Corrupt Practices Act in 2008 and associated settlement agreement that resulted in $56 million in payments by Willbros Group
  • a very costly 2014 accounting restatement that encompassed two quarters and millions of dollars of newly discovered losses, and
  • an incomprehensible inability to forecast operating prospects sufficient to avoid a prospective loan covenant breach after only a single quarter of the loan's existence.

The need for accountability and change at Willbros Group is not theoretical; it's real and apparent. The need for accountability is now, not over the course of multiple years. The existence of classified staggered director terms at Willbros entrenches and immunizes ineffective directors from necessary accountability and potential replacement by this company's shareowners.

With Over 30% Of Willbros Stock Entrenched, Board Should Heed Any Near 35% Affirmative Vote

The vote on Proposal #5 is technically "approved" if Willbros receives the affirmative vote of a majority of the total number of shares present. However, with a huge 16.6% block of stock given away to the company's lender, KKR, on top of another 13.1% held by InfrastruX/Tenaska, which is subject to a voting agreement with the Company, only 70% of the total outstanding shares of Willbros are free to vote either "FOR" or "against" Proposal #5 to de-classify Willbros' director elections. We think a truly independent Willbros' Board should properly view a "FOR" vote totaling a majority of the non-insider/lender shares (or approximately 35% of total outstanding) as sending a resounding message that the board has a need to reform its corporate governance structures and move to de-classify Willbros' director elections.

Additional Reforms Needed To Fix Broken Willbros Corporate Governance

In light of the conversion of former Independent Chairman McNabb to become CEO, his insistence on maintaining a tight grip on Willbros' Board composition and corporate governance practices indicates reforms in the functioning and composition of the Company's Board are desperately needed.

As Independent Chairman since September 2007, Mr. McNabb may have been the appropriate director for shareholders to dialogue with regarding the above-mentioned risk management and governance events. However, as recognized by your appointment as Lead Independent Director, it is no longer best practice for Willbros' Board to limit or delegate shareholder dialogue on all matters, especially corporate governance and compensation policies, exclusively to Mr. McNabb in his new role as CEO.

Hence, when requesting a dialogue with you several times, it was appalling that I was only allowed discussion with CEO McNabb. Further surprising was his lecture on his complete grasp of corporate governance best practices.

While we are impressed with the background and experience of new director nominee Mr. Phil Wedemeyer, we were disappointed by CEO McNabb's representation that this nominee selection (as well as others) was sourced and ultimately made by Mr. McNabb himself. We aren't sure whether Mr. McNabb, formerly as Independent Chair, "hand-picked" the rest of the directors on Willbros' Board. But the impression created by Mr. McNabb of the Company's director selection and nominations process, to say the least, is not best practice.

CEO McNabb is no longer Independent. You and the other Independent directors need to step up to your appropriate role in the director search and nominations process. While perhaps technically "Independent" in the eyes of stock exchange rules, having long-time McNabb friend and former business partner, Director Edward DiPaolo remain Nominating/Corporate Governance Committee Chairman, a role clearly reserved for independent oversight, raises serious additional conflict and governance concerns and is inappropriate.

Certainly CEO McNabb should provide input as to what skills and experience he feels would be value added to the Board. But most of the rest of the process and the ultimate decision of who is nominated must be in the hands of an independent Nominating/Governance Committee headed by a truly Independent Chair.

Lawndale has identified highly qualified independent individuals that we feel would be good additions to Willbros' Board. A truly Independent Board committee should be the group who vets such candidates, not CEO McNabb, nor his long-time friend, Mr. DiPaolo. We would like to discuss these candidates with you and, if given the opportunity to better understand the experience and background needs of the Board, I am sure we could further improve our suggestions.

It is readily apparent that the status quo of the Willbros' Board when Mr. McNabb was Independent Chairman remains unchanged, despite Mr. McNabb now being CEO. This is not acceptable. We have requested and continue to seek dialogue with you and an Independent Nominating/Governance Committee to discuss and address these corporate governance concerns. It is not the proper province of CEO McNabb to determine, decide or declare the Company's response to a request that was directed to Independent directors.

You, as Independent Lead Director, need to step up to your role and ensure an appropriate non-management dialogue conduit with respect to Willbros' shareholder concerns on topics that are properly deliberated and decided by Independent Board members and not CEO McNabb.

We await YOUR timely reply/response on the matters set forth above.



Andrew ShapiroPresident